Brussels has stumbled in its attempts to further beef up its economic safeguards against rivals, including China, as EU member states demand more evidence before endorsing tighter rules.
The European Commission has been pressing EU capitals to consider a regime to scrutinise outbound investments, alongside a better-co-ordinated system of export controls in highly sensitive technology.
But a draft of the EU economic security strategy, seen by the Financial Times, suggests that more analysis is needed before legal proposals are put forward as Brussels considers how best to enhance its trade and investment controls.
“There is a general reluctance [among EU capitals] to go too far,” said one EU official. “Caution and prudence is the word from the member states — let’s not jump ahead of ourselves when it comes to proposing new instruments like outbound investment screening.”
Only 19 of the 27 member states screen inward investment, and scrutinising outbound investment would take the EU into highly sensitive territory. While the US has long been debating the idea, the Biden administration has yet to announce its own regime.
Commission president Ursula von der Leyen has been calling for a policy of “de-risking” from China after warning of a “deliberate hardening” of Beijing’s strategic stance, which she said had become “more repressive at home and more assertive abroad”.
The EU, she said in March, needed to ensure that its companies’ capital, expertise and knowledge were not used to enhance the military and intelligence capabilities of the bloc’s “systemic rivals”, of which China is one.
However, member states, including Germany and France, are wary of sticking too closely to the US line, as they defend their extensive trade and business links with China, the world’s second-biggest economy.
Washington is also calibrating its approach after years of deteriorating relations. Secretary of state Antony Blinken on Monday said that his country had made “progress” in stabilising bilateral relations. Both countries “have an obligation to manage this relationship responsibly”, he said during a trip to Beijing.
The commission’s economic security strategy, which was still being finalised on Monday evening, will probably aim to kick-start a debate rather than putting forward detailed new policy instruments, officials said.
“We need a clear-eyed view of the risks and their evolution over time,” a draft of the EU document says. “This is why the commission and member states will deepen the analysis of critical supply chains and sensitive technology hotspots, stress test them and establish the level of risk.”
One EU diplomat said capitals had given “a relatively unenthusiastic response” to the new tools during discussions with the commission. “There’s recognition that some sort of framework is necessary, but caution in what it would mean. Nobody wants it to be used as another tool for protectionism,” the diplomat said.
“Everyone agrees we need to do something but they want this to be a very considered process” given how high the stakes are, said another EU diplomat.
Accordingly, the strategy will probably emphasise the importance of analysing the main risks and identifying possible gaps in its economic policy arsenal, rather than rushing to new proposals.
Among the areas of focus are better coordination of export controls in areas of highly sensitive technology and a linked regime for the screening of outbound investment. But any new EU powers will have to be highly targeted and narrow, said another EU official. The commission was attempting to strike a “very fine balance” as it keeps member states on board.
“What we will propose is just the first step in the whole process,” said the official. “We first need to have a shared understanding of the risks we face and then the best tools for addressing them.”
Even the Dutch government, which has announced that it would limit the export of the most advanced chipmaking machines to China, has expressed caution over the ideas.
Liesje Schreinemacher, enterprise minister, said screening was a “very heavy instrument” and Brussels should provide evidence of why it was needed.
“We are in many countries in the top five largest investors in the world. So that would be quite a test for us.” If it is necessary it should be limited to “strategic sectors” such as ports, telecommunications and healthcare, she said.
Brussels is under pressure not to fall behind the US as Washington considers its own approach.
After the latest meeting of their joint Trade and Technology Council in May the two sides declared that “appropriate measures designed to address risks from outbound investment” could be considered to complement existing tools of export controls and inbound investment screening.
Source: Economy - ft.com
